Thoughts on The State of the Union Address

by, Bill Miller, CIO, Brinker Capital

One of our political consultants, ISI, titled their recap, “State Of The Union Has Many Goals, Few Concrete Proposals.” Goldman Sachs wrote, “State of the Union: New Proposals, but No Big Surprises.” ISI continued, “In fact, it’s an exaggeration to call most of them proposals; most could be better described as goals or even platitudes. We know investors will be looking for the concrete details from the speech. At this point, there aren’t any.” Goldman Sachs concluded, “…the President will submit his budget to Congress on February 13. It is likely to include greater detail on the proposals in the President’s speech…”

So stay tuned, I will update you after February 13th.

In the meantime, please read highlights from 13D Research, a reputable think-tank. The title is, “Can America remain the world’s engine of innovation without manufacturing?” The analysis goes to the heart of what the President’s State of the Union should have addressed.

I quote,

Between 2001 and 2010, U.S. companies closed more than 42,000 factories, eliminating more than 5.5 million jobs. About a third of the country’s once-mighty manufacturing sector has disappeared.  The loss of textile and toy production to low-cost producers has had devastating impact, but more painful still is the weakening of tomorrow’s manufacturing muscle—alternative-energy technologies, specialty chemicals, and electronics, among others.

The number of high-tech manufacturing jobs in the United States has declined by 28% in the past decade, according to a recent report by the National Science Board.  Most of these jobs have migrated to Asia—not because wages are so much lower, but because governments there are more accommodating. Turned off by a myriad of factors in the U.S.—high corporate taxes, low incentives, a lack of skilled workers, confusing paperwork and constant uncertainty about government policies—manufacturers are gravitating elsewhere. And once the manufacturing of a product moves abroad, the innovative energy around that product will soon follow.

Caro Pope recently penned a three-part series for Bloomberg on the forces chipping away at Americas’ manufacturing edge. His conclusion—industries are leaving the U.S. not in search of cheaper workers, but of more supportive governments. Pope recounts an exchange with the head of Silicon Valley’s hottest clean-technology startups.

“I’d love to make this product in America. But I’m afraid I won’t be able to.”

“Wages?” I ask.

His dark eyebrows arch as if I were clueless, then he explains the reality of running a fab—an electronics fabrication factory. “Wages have nothing to do with it. The total wage burden in a fab is 10 percent. When I move a fab to Asia, I might lose 10 percent of my product just in theft.”

I’m startled. “So what is it?”

“Everything else. Taxes, infrastructure, workforce training, permits, health care. The last company that proposed a fab on Long Island went to Taiwan because they were told that in a drought their water supply would be in the queue after the golf courses.”¹

In my opinion, the President’s State of the Union Address offered little investment value to the public.

¹ “What I Learned This Week.” 13D Research. January 26, 2012. St. Thomas, USVI.

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